Divided Tax Court Rules Against IRS in Rent-A-Center Captive Case
U.S. Tax Court Decision Answered Some Questions, Posed Others
In January, a long-awaited decision in the court case Rent-A-Center v. Commissioner addressed the deductibility for federal income tax purposes of premium payments made by brother/sister entities to a commonly controlled captive insurance company.
The IRS challenged Rent-A-Center's captive on several fronts, but in a 10-6 divided opinion, the U.S. Tax Court upheld the deductibility of the premiums paid to the captive.
In light of this decision, captive owners should ensure that:
- Their captives have more than sufficient capital to meet their obligations.
- Their entities are domiciled in jurisdictions that sufficiently regulate captives; and
- Dealings with their captive are beyond reproach.